Asia and Elections: Country Risk

Asia Regional Overview

India continues to be an investor haven supported by strong economic growth and stable policy guidance. The political environment is heating up in India as well, as the country prepares for regional elections in five states in end-2023 and then for the larger general elections in April-May 2024. The national elections will see prime minister, Narendra Modi re-elected in our view, despite a somewhat modest opposition performance. The Modi-led ruling Bhartiya Janta Party has effectively decimated opposition in several Indian states and will likely secure a victory in 2024, as well. However, a newly formed coalition of 28 opposition parties, called I.N.D.I.A, which include the Congress party and other key opposition parties is looking to at least partially offset BJP’s landslide victory in 2024. As seen in previous election years, pre-electoral violence is expected in some areas, which occasionally see communal clashes. As the BJP drives the Hindutva narrative, it is likely that communal clashes flare up in sensitive areas. Further, political violence is frequently observed in the state of West Bengal and the 2024 elections will not be different. It is likely that the BJP will lose in the state given strong patronage for the regional party. 

However, once the BJP is re-elected and most likely with sufficient majority in parliament, policy continuity is expected. Policy reform has been central to this government’s leading style and this has enabled a strong business environment and helped support the country’s overall manufacturing sector. This is likely to persist over the medium term. However, the government’s focus on populist policies as it aims to retain its vote share in its third term, will see fiscal consolidation measures weaken. Even so, India’s debt metrics remain reasonable and sovereign debt default is unlikely. The country will emerge as a strong influence in global geopolitics and a key market for investment in the medium term.

Elsewhere in Asia, tensions are elevated in the Taiwan Strait given the looming risk of Chinese aggression. However, this is unlikely to change the outlook of stable domestic politics in Taiwan. The ruling Democratic Progressive Party (DPP) maintains a strong hold on the presidency and the Legislative Yuan (LY, parliament). Taiwan's robust political institutions and a history of parliamentary theatrics, including boycotts and sit-ins, are unlikely to significantly hinder the legislative process or the DPP's governance from 2024 to 2028.

The expectation is that the DPP will secure victory in the upcoming presidential and legislative elections in January 2024, ensuring policy continuity. The opposition is split three ways. However, these political dynamics have led to increased tensions across the Taiwan Strait, driven by China's concerns about Lai Ching-te, the DPP's presidential nominee, whom China perceives as pro-independence.This could led to tension before and after the election that could include large scale military exercises by China. 

Contrary to the Indian scenario, Malaysia even with elections now completed will find maintaining political stability and passing legislation challenging. The leader of the diverse Pakatan Harapan (PH) coalition, Anwar Ibrahim, currently leads a unity government that encompasses pro-Malay factions. The presence of these pro-Malay political forces in the government acts as a constraint on Mr. Anwar's progressive inclinations, and it indicates that Malaysia is yet to make a definitive shift towards multiculturalism. Mr. Anwar has committed to preserving ethnic-Malay preferences, such as affirmative action policies favoring bumiputera (ethnic Malays and other indigenous peoples) in areas like education and the corporate sector. The pro-Malay bloc would withdraw its support from the government, jeopardizing PH's parliamentary majority, should Mr. Anwar seek to dismantle these policies. Therefore, it appears that the government would now instead focus on passing less controversial reforms, such as fostering economic growth and combating corruption. Given the unstable nature of the ruling coalition and the varied interests and ideologies, there exists a low risk that there could be an untimely collapse of the unity government.

Meanwhile in South Korea, Yoon Suk-yeol, who represents the conservative People Power Party (PPP), narrowly won the presidential election in 2022. South Korea maintains a generally favorable political outlook due to widespread respect for democratic institutions, a low risk of violent social unrest, and the predominantly business-friendly policy positions held by mainstream parties. Nonetheless, the efficiency of the government is hindered by persistent hostility in party politics. Over 2024, the government's initiatives to reduce the corporate tax burden and deregulate the labor market will garner support from the business community and conservative voters but worsen conflicts with trade unions and alienate left-wing voters. The administration's denial of systemic gender discrimination, a stance that particularly appeals to young male voters with conservative social views, will create divisions in public opinion and sustain social tensions. Deep-seated animosity between the two primary political parties will undermine broader policy effectiveness. Neither party enjoys broad support across the political spectrum. Ongoing attacks aimed at damaging reputations will erode public trust in politicians and disrupt efforts to build consensus to address South Korea's social and economic challenges. The next legislative election, scheduled for April 2024, is expected to be highly competitive. The liberal Minjoo Party continues to dominate the parliamentary agenda and legislative process, controlling 168 of the 300 seats in the National Assembly, compared to the PPP's 112 seats. Nevertheless, Minjoo's leader, Lee Jae-myung, faces allegations of power abuse during his prior tenure as mayor of Seongnam city. Minjoo will find it challenging to expand its appeal among the electorate, given the party's lackluster governance record and unmet anti-corruption pledges. Consequently, it is expected to lose its status as the largest parliamentary party to the PPP in April 2024.

Bangladesh's political stability hinges on the dominance of the Awami League (AL) in the parliament, led by Prime Minister Sheikh Hasina Wajed. In contrast, the main opposition, the Bangladesh Nationalist Party (BNP), has amplified its protests throughout 2023, demanding fresh elections under the governance of a neutral caretaker government. Nevertheless, the BNP's influence over the electorate is considerably weaker than that of the AL. Protests will persist nationwide leading up to the general election in January 2024 and beyond, driven by mounting cost-of-living pressures and IMF-mandated structural reforms, including potential increases in fuel and electricity prices in late 2023. However, these protests are unlikely to dislodge the AL government, which is expected to remain in power post-election, given its strong grip on law enforcement and the opposition's limited strength. While the BNP may consider disruptive street protests or even boycotting the election, their unlikely path to power indicates they will likely participate, considering their ambitious aim to remove the AL-led government. In our view, the rivalry between the AL and the BNP will continue as an underlying source of political tension. Overall, Bangladesh’s political landscape will be volatile in the medium term, irrespective of AL’s political dominance. The influence of radical Islamist groups will continue to challenge the government, with sporadic incidents of violence and vandalism. The government's firm control over the security forces will enable them to manage the overall terrorism risk, even as political stability wavers. Maintaining law and order may involve a heavy-handed approach.

Across the ocean, in Myanmar, the situation remains dire. The military junta that seized control in a coup in 2021 will remain in a protracted conflict with resistance forces throughout the forecast period. While the overall intensity of the conflict is expected to gradually decrease in terms of the number of clashes and total fatalities, occasional spikes in violence remain a possibility. The deeply rooted violence on both sides makes reconciliation and a negotiated compromise highly unlikely in 2024. The outlook is skeptical about either side making significant gains in the short run. The ongoing conflicts closely resemble the scale and tactics of previous decades of violence. The junta, led by Senior General Min Aung Hlaing, is expected to maintain control over Myanmar's central lowlands, encompassing major cities like Yangon and Mandalay, the Irrawaddy Delta (a major rice-producing region), and key oil and gas fields. Resistance forces will continue to have a strong presence in mountainous regions near the border, which are strongholds of ethnic-minority armed organizations (EAOs), as well as in Burmese-majority areas like Sagaing and Magway.The military is anticipated to gain an advantage in the conflict over the medium term, potentially reclaiming some lost territory due to its resource superiority. While it may not achieve a decisive victory, the conflicts could evolve into a low-level insurgency similar to pre-2010s conditions, and a divide-and-conquer strategy could eventually push the resistance forces toward negotiation and a ceasefire. The junta-controlled areas, including major cities with significant manufacturing activity, will generate stable tax revenue as civil disobedience movements post-coup have dwindled. Additionally, the junta stands to benefit from earnings from oil and gas exports. The junta may also maintain some support from regional partners such as China and Thailand, whereas the resistance will struggle to secure substantial military aid from Western countries. Nonetheless, ongoing conflict will perpetuate widespread social discontent against the junta for years to come. The junta has alienated a significant portion of the population, including many ethnic Burmese who previously supported actions against the country's various EAOs and the mistreatment of the Rohingya ethnic group.

Another country that will continue to witness violence in Asia is Afghanistan.  The Taliban is expected to maintain its grip on most of Afghanistan throughout 2024. Therefore, Afghanistan will remain under authoritarian theocratic rule, with no prospects for democratic participation in politics. The small resistance in remote areas is unlikely to translate into a strong movement to dislodge the Taliban. Additionally, terrorist groups like al-Qaida and the Islamic State Khorasan Province (ISKP) are consolidating their presence, raising concerns about the potential for Afghanistan to become a failed state and a base for terrorist operations. This could trigger further Western intervention, including airstrikes. Further, the Taliban's inability to establish a strong state capable of addressing food security and economic development needs leaves the regime vulnerable to future popular uprisings.On the policy front, there is no indication of any form of liberalization, even minor, in Taliban policies. The Afghan Independent Human Rights Commission has been shut down, and strict controls have been imposed on the media. Secondary schools remain off-limits to girls, and a November 2022 decree extended the ban to public parks and gyms for women and girls. Ongoing human rights abuses are reported regularly and are unlikely to enhance the country's international standing. In December 2022, the Taliban issued a decree prohibiting women from working for Western non-governmental organizations (NGOs). Although this led to a partial reversal due to outcry from NGOs, women's rights in the workplace and society as a whole will continue to face severe restrictions and uncertainty. In this context, Western governments are likely to remain hesitant to fund a regime that is viewed as a pariah internationally.

Meanwhile, in South East Asia, political landscape in Vietnam is expected to remain stable, with the Communist Party of Vietnam (CPV) maintaining its firm grip on power. The country will continue as a one-party state, tightly controlled by the CPV, with little political instability anticipated. Strong economic growth, employment opportunities, and rising household income will help mitigate general discontent, while increased restrictions on freedom of speech will suppress political dissent. There is an expectation that Nguyen Phu Trong will complete his third term as general secretary in 2026. While his frail health and advanced age create a high risk of a premature departure, this is unlikely to result in severe political instability. Trong's faction enjoys widespread support among party leaders and high-level government officials, reducing the risk of a rival faction emerging in the event of his departure or death. The forced resignation of the state president, Nguyen Xuan Phuc, in early 2023 has further reinforced this stability. Trong has not yet endorsed a successor, but likely candidates include the current prime minister, Pham Minh Chinh, and the chair of the National Assembly, Vuong Dinh Hue.  While the government will continue its anti-corruption campaign, businesses will continue to grapple with high levels of corruption, as the campaign focuses on prosecuting high-profile corruption cases rather than implementing broader reforms to reduce malpractice at lower levels of the public sector. Sovereignty over the South China Sea remains a contentious issue in Vietnam, leading to occasional public protests and criticism of the CPV's response to perceived Chinese provocations. Investments by Chinese firms may also result in public outcry due to concerns about growing Chinese economic influence.

Overall, Asia's political future is marked by a mix of stability, electoral challenges, and geopolitical tensions, making the region a dynamic and evolving political landscape. While there is instability in parts, the region will drive global economic growth and will perform better than other regions globally. Compared to the Middle East, Asia is unlikely to witness any open conflicts in the near term. China is unlikely to start an open conflict given domestic struggles and the latent conflict between India and Pakistan will only see occasional skirmishes and not come to the surface.